The Review of Corporate Finance Studies Vol. 6 No. 1 2017
Subsidiary Legal Entities and Innovation
Abstract
Placing innovative assets in a separate subsidiary creates more autonomy for the unit manager of the innovation than a division, even when the subsidiary is wholly owned and controlled by the parent. The key driver is limited liability: unlike a division, the parent has the option to walk away from the subsidiary’s debt obligations. As a result, the parent invests less in developing internal uses for the innovation. This causes the unit manager to invest more in developing independent uses for the innovation: he must ”sink or swim” on his own effort, and his desired actions are less subject to overrule. Received June 29, 2012; editorial decision June 8, 2016 by Editor Paolo Fulghieri.
- DOI
- 10.1093/rcfs/cfw008
- Volume
- 6
- Issue
- 1
- Pages
- 39-67
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref